DENIED: March 15, 1994 GSBCA 12679 SIERRA TAHOE MFG., INC., Appellant, v. GENERAL SERVICES ADMINISTRATION, Respondent. Alan Lambert, President of Sierra Tahoe Mfg., Inc., South Lake Tahoe, CA, appearing for Appellant. Michael D. Tully, Personal Property Division, Office of General Counsel, General Services Administration, Washington, DC, counsel for Respondent. Before Board Judges DANIELS (Chairman), VERGILIO, and DeGRAFF. DANIELS, Board Judge. Sierra Tahoe Mfg., Inc. (STM), appeals the termination for default of a contract with the General Services Administration (GSA) for the supply of firefighters' field packs. The contract was terminated for failure to make timely delivery. STM does not deny that its deliveries were late; rather, it advances various affirmative defenses. The defenses are unavailing. We deny the appeal. Findings of Fact 1. On May 26, 1992, STM submitted a bid in response to a GSA solicitation which was intended to lead to the award of a contract for the supply of firefighters' complete field packs. Appeal File, Exhibit 1 at 2d unnumbered page. By August, GSA had not yet awarded the contract; in response to the agency's inquiry, STM extended its bid through November 23. Id. at 37th unnumbered page. 2. GSA was concerned that in performing other supply contracts, STM had been delinquent in the delivery of goods, to the extent that GSA considered STM's performance to have been "less than satisfactory." Appeal File, Exhibits 20-22. GSA consequently asked the Small Business Administration (SBA) to consider issuing a certificate of competency to STM. Id., Exhibit 22. The SBA issued the certificate. Respondent's Submission of Mar. 7, 1994, Exhibit 1. On October 29, 1992, GSA awarded the contract to STM.[foot #] 1 3. The contract contains the standard "Default (Fixed- Price Supply and Service)" clause set out at 48 CFR 52.249-8 (1992). This clause includes the following provisions: (a)(1) The Government may, subject to paragraphs (c) and (d) below, by written notice of default to the contractor, terminate this contract in whole or in part if the Contractor fails to -- (i) Deliver the supplies or to perform the services within the time specified in this contract or any extension; . . . . . . . . (c) Except for defaults of subcontractors at any tier, the Contractor shall not be liable for any excess costs if the failure to perform the contract arises from causes beyond the control and without the fault of the Contractor. Examples of such causes include (1) acts of God or of the public enemy, (2) acts of the Government in either its sovereign or contractual capacity, (3) fires, (4) floods, (5) epidemics, (6) quarantine restrictions, (7) strikes, (8) freight embargoes, and (9) unusually severe weather. In each instance the failure to perform must be beyond the ----------- FOOTNOTE BEGINS --------- [foot #] 1 The Government awards contracts only to those firms its contracting officers determine are "responsible" -- a phrase which means having the financial and other resources necessary to perform the contract in question, as well as satisfactory records of performance and integrity. 48 CFR subpt. 9.1 (1992). By regulation, when a procuring agency determines and documents that a small business, whose response to an invitation for bids is responsive, lacks elements of responsibility, the agency generally must withhold contract award and refer the matter to the SBA. Id. 19.602-1(a). The SBA must ___ then inform the business of the procuring agency's determination and offer the firm an opportunity to apply to the SBA for a certificate of competency. Id. 19.602-2(a)(1). If the SBA ___ issues such a certificate, the procuring agency shall award the contract to the firm in question; the certificate is conclusive with respect to all elements of responsibility. Id. 19.602-4(b). ___ ----------- FOOTNOTE ENDS ----------- control and without the fault or negligence of the contractor. (d) If the failure to perform is caused by the default of a subcontractor at any tier, and if the cause of the default is beyond the control of both the Contractor and the subcontractor, and without the fault or negligence of either, the Contractor shall not be liable for any excess costs for failure to perform, unless the subcontracted supplies or services were obtainable from other sources in sufficient time for the Contractor to meet the required delivery schedule. Appeal File, Exhibit 1 at page 22 of GSA Form 3507. 4. The contract was for the supply of GSA's requirements of the item in question from date of award through September 30, 1994. Appeal File, Exhibit 1 at 1st unnumbered page, 100. Delivery was required to be made within 115 calendar days after the contractor's receipt of each order. Id. at 80. 5. According to STM's uncontested assertions, during February, March, and April of 1993, GSA placed the only orders it ever placed under this contract. The orders were for 10,700 items. Appellant's Submission of Feb. 24, 1994, 4. 6. On June 14, 1993, STM's president informed the GSA contracting officer that STM "may go out of business, and that performance on current contracts with GSA is questionable." Appeal File, Exhibit 2. The contracting officer asked whether STM intended to perform the field pack contract. Id. STM says that it responded that it "has every intention of fulfilling the terms of the above contract to the best of [its] ability." Complaint, Attachment; Appellant's Submission of Feb. 24, 1994, 2. 7. By July 27, delivery of seven purchase orders, totalling 7,890 items, was delinquent. The contracting officer warned STM on that date that if the firm did not provide a satisfactory explanation for the delinquency within five working days, the contract might be terminated for default. Appeal File, Exhibit 3. 8. On August 5, STM replied that its delay was due to "the financial burden placed on the company from [another GSA contract, for the supply of nylon tent flies]." STM stated, "We will be able to deliver the items no later than August 11, 1993." Appeal File, Exhibit 4. 9. By August 16, however, the contracting officer believed that all the orders mentioned in his July 27 letter were still delinquent -- as were three additional orders. The outstanding orders had been due by June 24, July 13, and August 9. On August 16, the contracting officer terminated for default all ten orders and the entire contract. Appeal File, Exhibit 5. 10. Later in August, STM asked that the Government accept delivery of the ordered items it already had in production. Appeal File, Exhibits 6-8. On September 10, the contracting officer rescinded the default termination of five orders. One of the orders had actually been received on August 11 and had since been accepted. The other four orders were for items which the contracting officer had determined were needed by the Government. The rescission of the termination of the four orders was in exchange for a price reduction and was accompanied by an extension of the delivery due dates. Id., Exhibits 3, 10, 12. 11. On September 30, after determining that the items included in three additional orders were nearly complete, the contracting officer rescinded his termination of those orders. Again, the termination was in exchange for a price reduction and was accompanied by an extension of the delivery due dates. Appeal File, Exhibit 14. Subsequently, however, STM made only partial delivery on one of the orders, and advised GSA that it had neither the materials to complete the order nor the intention of doing so. On November 2, the contracting officer terminated for default this part of the order. Id., Exhibit 15. This termination has not been appealed by STM. (GSA later rejected as unacceptable most of the items covered by the three orders. Id., Exhibit 19.) 12. When STM began performance of an earlier contract with GSA, for the supply of tent flies, it bought fabric from a firm which accepted, in exchange for the material, a percentage of the agency's payments to STM for completed goods. STM maintains that this arrangement permitted it "to manufacture and perform on a contract that was beyond the cash flow capability of our company." Complaint at 1. STM knew by July 17, 1992, that the fabric supplier had gone out of business. Appeal File, Exhibit 20. 13. The parties agree that during the winter of 1992-93, the area where STM's plant is located experienced severe winter storms; GSA states (and STM does not challenge) that the worst storms occurred from December 22, 1992, through January 4, 1993. The parties further agree that as a result of the storms, GSA extended delivery dates on purchase orders issued under the tent fly contract. Complaint at 1; Answer, 10. Discussion A default termination is a drastic sanction which should be imposed only for good grounds and on solid evidence. Insul- Glass, Inc., GSBCA 8223, 89-1 BCA 21,361, at 107,673 (1988) (citing J. D. Hedin Construction Co. v. United States, 408 F.2d 424, 431 (Ct. Cl. 1969)). The Government has the burden of demonstrating that ending a contract in this way is proper. Iowa-Illinois Cleaning Co. v. General Services Administration, GSBCA 11311 (May 21, 1993) (citing Lisbon Contractors, Inc. v. United States, 828 F.2d 759, 763-65 (Fed. Cir. 1987)). The Government has a right to demand strict compliance with contract requirements, however. Iowa-Illinois Cleaning (citing Custom Production Manufacturing, Inc. v. General Services Administration, GSBCA 10393, 92-1 BCA 24,688, at 123,152). That is precisely what GSA did here, by insisting on timely delivery of firefighters' field packs. GSA was concerned, even before contract award, that deliveries be made in a timely fashion. Finding 2. The record is clear -- and uncontested -- that the contractor, STM, did not make prompt deliveries as to the great majority of items ordered. Findings 5, 7, 9. Thus, the contracting officer's termination of the contract was justified unless the contractor can prevail as to an affirmative defense. The contractor might, for example, show that the failure to make timely deliveries was excusable, e.g., Columbia Loose Leaf Corp., GSBCA 5805(5067)-REIN, 82-1 BCA 15,464, at 76,628; that the termination was prejudicially marred by a procedural error, Darwin Construction Co. v. General Services Administration, GSBCA 11363(10193)-REIN, 93-1 BCA 25,283, at 125,920 (1992); or that the termination was otherwise arbitrary or capricious or an abuse of discretion, Darwin Construction Co. v. United States, 811 F.2d 593, 598 (Fed. Cir. 1987). The contractor has the burden of proving such a defense. STM proffers two excuses for its tardiness in delivering the field packs. It maintains that the bankruptcy of its fabric supplier impaired its financial ability to perform the contract and that severe weather had an adverse impact on production. The first excuse is not authorized by the contract as a reason for failing to deliver on time. Finding 3. It is also inconsistent with the rule that a contractor's financial ability to perform is generally a matter within the firm's control and does not excuse late delivery or other actions leading to a default. Centennial Leasing v. General Services Administration, GSBCA 12037, 94-1 BCA 26,398, at 131,321 (1993); Auto Skate Co., GSBCA 10510, 91-3 BCA 24,260, at 121,292; International Multi-Services, GSBCA 10606, et al., 91-2 BCA 23,681, at 118,589 (1990), aff'd, 945 F.2d 416 (Fed. Cir. 1991) (table). Even if this were not so, this excuse would not be credible here because STM extended its bid for this contract with full knowledge of the supplier's bankruptcy. Findings 1, 12. The second excuse -- unusually severe weather -- is also unavailing because STM has not shown how bad weather in December and January, Finding 13, affected production of field packs from February to August. Air Inc. v. General Services Administration, GSBCA 9556, et al., 93-2 BCA 25,668, at 127,693 (1992). STM also complains that at the time the contracting officer made his termination decision, the purchase orders in question were substantially complete. This assertion appears to be an allegation that the contracting officer violated one of the procedural requirements established by regulation, 48 CFR 49.402-3 (1992), that must be observed before terminating for default -- he did not consider "the period of time required to obtain [the supplies] from other sources, as compared with the time delivery could be obtained from the delinquent contractor." Id. 49.402-3(f)(4). Whether this allegation is true or not, the contracting officer's subsequent actions have removed any prejudice which might have resulted from his having failed to consider this factor. GSA rescinded the terminations of eight of the ten delivery orders in question and accepted all goods covered by those orders which it believed were compliant with relevant specifications. Findings 10, 11. STM has not asserted that it ever produced any field packs other than those included in these purchase orders (and other orders which were completed and accepted prior to termination). It has contended that it wanted to continue to perform the contract, but in the absence of a demonstrated ability to deliver, a firm's desire is insufficient grounds for a contracting officer to forbear from terminating for default. Darwin Construction Co., GSBCA 10193, 91-1 BCA 23,419, at 117,486 (1990). STM also maintains that GSA acted arbitrarily in terminating the field pack contract for default because STM had established an excellent past performance record, and because the agency did not terminate contracts held by other firms under which deliveries were more tardy than STM's were here. As to STM's prior performance, the record demonstrates that this contractor was consistently late in its deliveries, to the extent that GSA was convinced that the firm was not responsible to perform this contract. Finding 2. Documents filed by STM on February 24 also show a history of delinquent deliveries. As to the comparison with other firms' contracts, we note that the decision to terminate for default is discretionary. Nuclear Research Corp. v. United States, 814 F.2d 647, 649 (Fed. Cir. 1987). Contracting officers must evaluate each situation on its own merits. Although what STM says may be true, it does not take into account the separate circumstances of the other contracts. On the record established in this case, we cannot find that the decision in this case was unreasonable. Decision The appeal is DENIED. _________________________ STEPHEN M. DANIELS Board Judge We concur: _________________________ _________________________ JOSEPH A. VERGILIO MARTHA H. DeGRAFF Board Judge Board Judge